Infinity Select Ins. Co. v. Superior Court

Insurance Coverage & Bad Faith Newsletter - Summer/Fall 2023

(Commercial Auto Liability Insurer Was Not Required to Afford Limits of $750,000 Required Under California Law for Motor Carriers of Property)

(September 2023) - In Infinity Select Ins. Co. v. Superior Court (Real Parties in Interest-Cal Leduc), 94 Cal.App.5th 190 (August 8, 2023), the California Fifth District Court of Appeal granted Infinity Select Insurance Company’s and Infinity Property and Casualty Corporation’s (collectively, “Infinity”) petition for writ of mandate for an order requiring the trial court to rule that an Infinity policy affording limits of $50,000 per accident to insured, Mario Guerra, applied in connection with an underlying lawsuit alleging claims of negligence and wrongful death arising out of an automobile accident, rather than limits of $750,000 required by the Motor Carriers of Property Permit Act (MCPPA-Vehicle Code section 34600).

While the underlying lawsuit was pending against Guerra, the plaintiffs served a 998 offer to settle the lawsuit for $750,000 based on their contention that as an insurer of a “motor carrier of property,” Infinity was required to afford Guerra minimum limits of $750,000 under its policy pursuant to the MCPPA and that such limits were incorporated into the Infinity policy as a matter of law. The offer was not accepted as Infinity took the position that it was not required to afford Guerra limits of $750,000 under its policy. Rather, the limits of $50,000 per accident applied to the underlying action.

Subsequently, the underlying action was settled and Guerra assigned all his rights under the Infinity policy to the plaintiffs based on bad faith failure to settle within policy limits of $750,000 imposed as of law under the MCPPA, and stipulated to an assessment of damages of $3,565,995.23. Further, the plaintiffs could pursue their claims directly against Infinity without having to secure a judgment against Guerra in excess of policy limits of $750,000.

The plaintiffs then filed an action against Infinity arguing that its policy afforded limits of $750,000 in conformance with California law under the MCPPA. For purposes of instructing the jury in connection with the plaintiffs’ bad faith claims, the trial court agreed with the plaintiffs and found that the Infinity policy limits were $750,000 pursuant to the MCPPA requirements and reformed the policy to afford such limits. As a result, Infinity filed a petition for writ of mandate requiring the trial court to vacate its ruling with respect to the applicable limits under its policy.

In vacating the trial court’s ruling, the Court of Appeal noted the following:

Because this case is presented to us as one based on undisputed facts, it is perhaps helpful to state what this case (as presented to us) is not about. The undisputed facts, as presented to us, do not indicate whether Guerra ever requested insurance in order to comply with the MCPPA, or whether he requested Infinity file a DMV Form 65 certificate of insurance or issue a DMV form 67 policy endorsement (DMV Form 67 policy endorsement). Similarly, the undisputed evidence before us does not suggest Infinity ever represented to Guerra that the Infinity policy would comply with MCPPA requirements, or that Infinity would file such certificate of insurance or issue such endorsement. In short, this is not a case premised on alleged unmet expectations of Guerra or alleged misrepresentations by Infinity.

The Court of Appeal also discussed the MCPPA requirements for motor carriers of property and stated as follows:

A motor carrier of property is subject to heightened insurance coverage requirements under the MCPPA. Subject to exceptions not relevant here, former section 34601 of the MCPPA provided, in relevant part, “[a]s used in this division, ‘motor carrier of property’ means any person who operates any commercial motor vehicle as defined in subdivision (c).” (Former § 34601, subd. (a).) It further provided “[a]s used in this division, except as provided in paragraph (2), a ‘commercial motor vehicle’ means … any motortruck of two of more axles that is more than 10,000 pounds [GVWR], and any other motor vehicle used to transport property for compensation.” (Former § 34601, subd. (c)(1).) As noted above, the parties stipulated Guerra was a “motor carrier of property” by virtue of the RAM truck's GVWR and the manner in which he used it during the term of the Infinity policy.

Except in certain situations not relevant here, a motor carrier of property “shall not operate a commercial motor vehicle on any public highway in this state” unless it has complied with certain statutory requirements including the holding of a “valid motor carrier permit” issued by the DMV. (Former § 34620, subd. (a).)

To receive a valid motor carrier permit, a motor carrier of property must, among other things, obtain “[e]vidence of financial responsibility.” (Former § 34621, subd. (b)(6).) Proof of financial responsibility may take the form of a compliant certificate of insurance, surety bond, or certificate of self-insurance deposited with the DMV. (§ 34631, subds. (a)–(c).) “A motor carrier permit shall not be granted” until a certificate of insurance meeting the “minimum insurance requirements contained in Section 34631.5” is filed with the DMV. (§ 34630, subd. (a).)

DMV regulations provide three methods by which a motor carrier of property may prove the financial responsibility necessary to obtain a motor carrier permit: (1) a DMV Form 65 certificate of insurance pursuant to subdivision (a) of section 34631; (2) a surety bond pursuant to subdivision (b) of section 34631; or (3) a certificate of self-insurance pursuant to subdivision (c) of section 34631. (Cal. Code Regs., tit. 13, § 220.06, subd. (a).) These regulations further provide that the DMV Form 65 certificate of insurance “shall be submitted to the [DMV] by the motor carrier's insurance provider” (id., subd. (a)(1)); and “[p]roof of financial responsibility pursuant to … section 16000 et seq., shall not be substituted for the proof required for a Motor Carrier Permit … .” (Id., subd. (a)(2).) In addition, DMV regulations provide that a DMV Form 67 policy endorsement “amending the insurance policy to comply with insurance requirements imposed by the [MCPPA] … shall be attached to and made part of, the insurance policy insuring the motor carrier.” (Cal. Code Regs., tit. 13, § 220.06, subd. (b).)

Based on the language of the MCPPA, the Court of Appeal found that an insurer is not obligated to comply with the requirements in the MCPPA. Rather, it is the motor carrier of property that is required to certify its financial responsibility which could be accomplished by purchasing insurance affording limits of $750,000. The Court of Appeal held as follows:

In interpreting provisions of the Highway Carriers' Act (Pub. Util. Code, former § 3501 et seq.), the statutory scheme that regulated motor carriers of property prior to enactment of the MCPPA, our state Supreme Court noted a commercial highway carrier “bears the ultimate responsibility for maintaining adequate liability coverage.” (Transamerica Ins. Co. v. Tab Transportation, Inc. (1995) 12 Cal.4th 389, 404 [48 Cal. Rptr. 2d 159, 906 P.2d 1341] (Tab).) Nothing in the text of the above MCPPA provisions operates to transfer such a responsibility to an insurer who has not certified an insurance policy for the purpose of complying with the MCPPA, and who has not included an endorsement incorporating the provisions of the MCPPA into its policy.

Plaintiffs point to California Code of Regulations, title 13, section 220.06, subdivision (a) in support of their contention that Infinity was required to issue a compliant MCPPA policy with liability limits of $750,000. That regulation states acceptable proof of insurance (i.e., one form of financial responsibility) under the MCPPA “shall be submitted to the department in the form of a [DMV Form 65 certificate of insurance]”; said certificate “shall be submitted to the [DMV] by the motor carrier's insurance provider”; and that “[p]roof of financial responsibility pursuant to Division 7, … section 16000 et seq., shall not be substituted for the proof required for a Motor Carrier Permit.” (Cal. Code Regs., tit. 13, § 220.06, subd. (a)(1), (2).) Moreover, the regulation provides that a DMV Form 67 policy endorsement “amending the insurance policy to comply with insurance requirements imposed by the [MCPPA], commencing with … section 34630, shall be attached to and made part of, the insurance policy insuring the motor carrier.” (Cal. Code Regs., tit. 13, § 220.06, subd. (b).)

We read the above regulation as providing that when an insurer issues a policy with the purpose of meeting the requirements of the MCPPA, it is required to (1) issue a DMV Form 65 certificate of insurance and to submit the certificate to the DMV; and (2) attach a DMV Form 67 policy endorsement to the policy. Nothing in the regulation suggests that an insurer who does not issue a policy for that purpose is nevertheless required to issue the DMV Form 65 certificate of insurance or include the DMV Form 67 policy endorsement in the policy it issues.

In addition, the Court of Appeal found that a motor carrier of property could satisfy the requirement of financial responsibility based on insurance affording limits of $750,000 by purchasing more than one policy, such that lower limits could be afforded by a policy to an insured in compliance with the MCPPA, so long as the total number of policies certified by the motor carrier of property had combined limits of $750,000. Hence, there is no requirement that the entire statutory limit of $750,000 had to be afforded by the Infinity policy. The Court of Appeal held:

Consequently, even if we were to accept the premise that an insurer must issue an MCPPA compliant insurance policy to a motor carrier of property under the undisputed facts as presented to us—a premise that we do not adopt—nothing in the MCPPA statutes or DMV regulations support reforming the Infinity policy to provide coverage in the full amount of the $750,000.

Based on the above reasoning, the Court of Appeal granted Infinity’s petition and held that the trial court’s ruling should be vacated and a new ruling issued finding that the Infinity policy limit is $50,000.